Gold and other precious metals have been used as a form of currency for centuries. Today, many investors view these metals as a safe haven during turbulent times in the stock market. GMRgold is more than an authorized provider of gold and silver. Our firm helps clients build an insurance policy out of precious metals—protecting their wealth against inflation and adding value to their portfolios. In this blog post, we'll explore the correlation between gold and stocks, and discuss why some investors believe that investing in precious metals can help protect against volatility in the stock market. We'll also provide tips on how to start investing in gold and other precious metals.
Reasons to Reconsider the Stock Market
The stock market is a key indicator of the health of the economy. When stocks are doing well, it means that businesses are thriving and consumers have confidence in the future. However, stocks can also be volatile, and recent data from the S&P 500 shows that we may be due for a market correction. Moreover, unusual equity flows, low earning yields, and record margin debt levels indicate that the market is expected to undergo a pullback in the near future. Let's look at those reasons a bit more in-depth.
Unusual Equity Flows
Equity flows refer to the rate at which assets are drawn into global equity markets, or stocks. Recently, equity flows have had a large impact on world financial markets. During the three weeks prior to March 23, 2022, investors were selling stocks, but then the tide turned and investors started buying stocks again. This shift caused global equity funds to be injected with $19.66 billion. All of this is happening because of the stimulus-related inflows that are offsetting the economic impact of the COVID-19 pandemic. We are now watching equity levels begin to correct themselves and return to normal levels, or even potentially reverse.
Low Earning Yields
With equity yields at historic lows, there is an increased likelihood of a near-term market correction. For stocks to return to more normal levels, either company earnings would need to increase or stock prices would need to fall. However, with commodity price inflation rising faster than wages, it will be difficult for corporations to pass higher costs on to consumers. Therefore, lower stock prices are a more likely outcome based on two similar occurrences in the last 150 years that have prefaced a pullback in market levels. While no one can predict the future with certainty, investors would be wise to exercise caution in the current environment.
Record Margin Debt Levels
Margin debt refers to the borrowed money that is used as collateral for a loan to purchase stocks. There is a maximum amount that can be borrowed against any stock, and if the stock price falls, the investor will be issued a margin call, requiring them to deposit enough cash to raise the collateral back up to minimum levels. Often, this means selling stocks, which puts downward pressure on falling markets. We are seeing the effects of unchecked margin debt levels in the stock market decline. It's possible that the corrections we see due to rapid growth in margin debt could exceed what we experienced during both the dot-com bubble burst of the early 2000s and the Great Recession. This is a cause for concern and something that we should all be monitoring closely.
The Appeal of Precious Metals
When stocks and other investments experience sudden growth, it can be tempting to put all of your money into the market. However, recent history has shown that what goes up often comes down again. The recent “growth” that investors have been enjoying may reveal itself only to be inflation or dollar devaluation. As a result, those who have all of their money invested in stocks could see their portfolios lose value very quickly. This is where gold comes in. Gold bars, gold coins, and other gold investments have been able to withstand centuries of economic and political turmoil. Because of its staying power, there is worldwide demand for physical gold— both from individuals and governments interested in owning precious metals to strengthen investment portfolios through diversification. In the event of a stock market crash or other economic downturn, having some gold in your portfolio could help to cushion the blow and keep your finances afloat.
As the dollar continues to lose value on the global stage, more and more people are turning to gold as a way to protect their assets. While stocks and other financial investments can be volatile, gold is a much more stable investment. By rotating a portion of your assets out of the stock market and into gold, you can avoid significant losses and preserve your purchasing power. Gold is also a good hedge against inflation, as its value tends to increase when the cost of living goes up. With the dollar expected to continue its downward spiral, now is the time to invest in gold.
GMRgold: Your Precious Metals and Portfolio Experts
GMRgold has built long-standing relationships with key industry partners to ensure the highest quality products at the best possible price. Whether you're new to the precious metals market or a seasoned investor with a diverse portfolio, your personal advisor will carefully customize your options to meet your specific needs. GMRgold was created to serve as a safe and stable diversification partner when buying, selling, and trading gold, silver, platinum, and palladium. Let us advise you on new products, portfolio diversification, IRA and 401(k) options, valuation of your collection, and other matters related to the precious metals market.
Call us today at 877-795-9585 or fill out our online contact form to learn more about our solid solutions using precious metals to diversify your portfolio.